What are the pros and cons of moving into an investment property post-divorce?

What are the pros and cons of moving into an investment property post-divorce?
What are the pros and cons of moving into an investment property post-divorce?

Dear Margaret,

I have read some of your Q&A's and decided to email you. I hope that you may be able to give me some advice.

I am going through my divorce settlement with my partner and we have a one bedroom apartment investment house in Melbourne that is currently leased.

I intend to keep the investment house and turn into my principal place of residence after the divorce settlement.

Therefore, I hope you can advise whether this is a good idea and what the pros and cons of changing an investment house  into my principal place of residence?

Looking forward to hear from you soon.

Kind regards,

Thomas

Margaret's answer on the next page. Please click below.


Dear Thomas,

In Victoria, it is possible to transfer ‘by way of love and affection’ a property from one spouse to another and avoid stamp duty on that transfer.  In a divorce in any state, you can also make the transfer under a divorce settlement and avoid any transfer duty.

However there are a few other issues to consider.  Firstly, and depending upon the value of your spouse’s half at the time, she may incur capital gains tax on her half which is disposed of to you.  This would be assessed on the difference in the value as at time of transfer and the original cost base.  In your case, you would then have two separate cost bases on this property – the half you already owned would have the cost base applicable at the time of purchase and the half you acquire would have one applicable at the time of transfer under the property settlement.

If you live in the property and subsequently sell at a later date, half of the property would incur pro-rated capital gains tax using the cost base on the first half and the eventual sales price, calculated according to days rented, not rented. The second half would be CGT free. 

If at any time you do rent the entire property out, then it’s all complicated further – the half you owned is still pro-rated as above, but the half you acquire may qualify under the six year rule CGT exemption (as long as you do not claim that exemption elsewhere), or not, in which case it has a different method for CGT calculations.

In any event there is no impact on you until you eventually sell, but in the meantime I advise you to keep full and accurate records about everything, even any money you may spend on the property, as these records will be required by the tax office and be crucial for you to correctly establish all of your different cost bases. Apart from this issue, I cannot see anything else you should really worry about, as you are planning to make this your own home and so no further taxes should arise.

Kind regards,

Margaret

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Margaret Lomas

Margaret Lomas

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and Your Money, Your Call, both on Sky News. She is the founder of Destiny.

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